ACG 2021 Study Guide - Effective Interest Rate, Accrued Interest, Amortization Schedule

Select the best answer from the list below to completestatements that follow.

amortization long-term callable loss contra liability marketface value present value discount premium

1. All liabilities that are not classified as currentliabilities are classified as_____________

. 2. The denomination or principal amount of the bond is usuallyreferred to as the___________

. 3. Bonds that may be retired by the issuing company beforetheir specified due date are________________

. 4. The________________ rate of interest is the rate thatbondholders could obtain by investing in other bonds that aresimilar to the issuing firm's bonds.

5. The bond issue price equals the _______________of the cashflows that the bond will produce.

6. Bonds were issued at a(n)________________ when the issueprice exceeds the face value.

7. Discount on Bonds Payable is shown on the balance sheet asa(n) ________________

. 8. If the market rate ofinterest is greater then the face rate, then the bonds are issuedat a(n) ________________________.

9. ____________________is theprocess of transferring an amount from the bond discount or premiumto interest expense each time period to adjust interestexpense.

10. When a bond is retired earlyand the redemption price is greater than the bond's carrying value,there will be a(n) ______________________ on redemption.

Exercise 10-19A on page 571

On January 1, 2016, the Diamond Association issued bonds with aface value of $300,000, a stated rate of interest of 6%, and a10-year term to maturity Interest is payable in cash on December 31of each year. The effective rate of interest was 7% at the time thebonds were issued. The bonds sold for $278,932. Diamond used theeffective interest rate method to amortize the bond discount.

Determine the amount of the discount on the day of issue.

Determine the amount of interest expense recognized on December31, 2016.

Determine the carrying value of the bond liability on December31, 2016.

Provide the general journal entry necessary to record theDecember 31, 2016, interest expense.

a. What was the maturity amount of the bonds?

48,000

b. How much cash was received at the date of issuance (sale) ofthe bonds?

49,228

c. Was there a premium or a discount? If so, which and howmuch?

1,228

d. How much cash will be disbursed for interest each period andin total for the full life of the bond issue?

e. What is the stated rate of interest?

f. What is the effective rate of interest?

g.